When submitting your UK Self-Assessment tax return, accuracy matters. HMRC has the power to charge penalties if your return contains an inaccuracy that leads to an understatement of tax, a false or inflated loss, or a false or inflated repayment claim.
These penalties are governed by Schedule 24 of the Finance Act 2007 and depend on the reason for the error – whether it was careless, deliberate, or deliberate and concealed.
How HMRC Categorises Errors
- Careless Error
- The taxpayer failed to take reasonable care to ensure the return was correct.
- This could be due to poor record keeping, using estimates instead of accurate figures, or not understanding the tax rules.
- Penalty range: 0–30% of the tax lost.
- Deliberate Error
- The taxpayer knew the information was wrong when submitting the return but did not take steps to hide it.
- Penalty range: 20–70% of the tax lost.
- Deliberate and Concealed Error
- The taxpayer knowingly sent incorrect information and actively tried to hide it — for example, falsifying invoices or destroying records.
- Penalty range: 30–100% of the tax lost.
HMRC may reduce penalties if the taxpayer discloses the error voluntarily, provides full details, and cooperates to correct it quickly.
Example 1 – Careless Error
Scenario:
Sarah, a self-employed graphic designer, prepares her own 2024–25 tax return. She forgets to include several small client payments received via PayPal because they were not linked to her main business account.
Impact:
Her total income is understated by £2,000, leading to an underpayment of around £400 in tax.
HMRC view:
This is a careless error, as Sarah didn’t take reasonable care to maintain complete business records, but she didn’t intend to mislead HMRC.
Penalty:
If she discovers and corrects the error voluntarily, HMRC may apply a reduced penalty — for instance, 10% (£40) of the tax lost.
Example 2 – Deliberate Error
Scenario:
James, a higher-rate taxpayer, earns £15,000 in rental income from a flat in Manchester but chooses not to declare it on his 2024–25 tax return to reduce his bill.
Impact:
He underpays around £6,000 in tax.
HMRC view:
This is a deliberate error — James knowingly omitted income that should have been declared.
If he had also created false tenancy documents to hide the income, it would escalate to deliberate and concealed.
Penalty:
- Deliberate (not concealed): 20–70% of tax lost → £1,200–£4,200
- Deliberate and concealed: 30–100% → £1,800–£6,000
Avoiding Penalties
To avoid penalties:
- Keep accurate and complete financial records.
- Double-check figures before submitting.
- Use reliable accounting software or a professional tax adviser.
- If you spot an error after filing, amend your return promptly or voluntarily disclose it to HMRC.
